The Trend

Kroger: One of the Most Ridiculous Overreactions

Traders overreact.  They do it every day. 

And if you can spot it in time, you could make a fortune.

Look at Kroger Company (KR), for example. 

In June 2017, the stock took a hit on earnings, and then (AMZN) announced it would enter the food business.  All of a sudden, investors became terrified that AMZN was about to overtake the grocer business after buying Whole Foods Markets for $13.7 billion.

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The whole sector was crippled on the news. KR plunged from $30 to $22.  COST fell from $180 to $157.  Supervalu (SVU) plummeted from $4.10 to $3.

But it was nothing more than a clear overreaction.

This wasn’t the first time a bigger company had ever entered the grocer space. It happened in 1988 when Wal-Mart started selling food, too. Yet that didn’t stop KR or even COST from ballooning over the last few years. And chances were they wouldn’t stop growing because AMZN entered the space. 

What had to be considered with the AMZN news is this.

Whole Foods only had 1.7% market share, which was about four times less than that of Kroger. Also, Whole Foods’ market penetration rate is far less than Kroger’s, too. Plus, Kroger is also making big strides in online shopping, too.

In our opinion at the time, the sell-off in KR was nothing more than a poorly researched overreaction. We could also clearly see that technical selling pressure was beginning to subside in July 2017, as well.

The overreaction was so severe that MACD plunged to an unsustainable historic low. Even the RSI and Williams’ %R were deep in oversold territory, too, as the stock found support at $23 a share and began to pivot higher.

Not long after the gap, the stock began to reverse higher, even as other analysts warned to stay away from it on AMZN news.  All of the bad news, at the time, was fully priced into the stock. 

It’s amazing how many similar opportunities just like this one pop up every day.  All because the herd overreacts, and fools follow.  Lesson learned – ignore the herd.

Do your own research fundamentally and technically. 

When it comes to large moves in stock prices, a mysterious "X-Pattern" often appears on the charts before stocks make a significant break to the upside or downside. Click Here to learn more about this chart pattern.